Audit Report - Granules India Limited · Payable bonds Long-term payables Long-term accrued payroll...

WUYIGE Certified Public Accountants LLP. Telephone: +86 (10) 82330558 15/F, Xueyuan International Tower Fax: +86 (10) 82327668 1 Zhichun Road, Haidian Dist Internet: www.daxincpa.com.cn Beijing, China. 100083

Audit Report

DXSZ [2016] No. 2-00048

To all Shareholders of Hubei Granules Biocause Pharmaceutical Company LTD.,

We have audited the accompanying financial statement of Hubei Granules Biocause

Pharmaceutical Company LTD. (the “Company”), including the balance sheet as of December 31,

2015, income statement for 2015, statement of cash flow, Statement of Changes in Equity and the

accompanying notes to financial statements.

1. Management’s Responsibility for the Financial Statements

The management is responsible for the preparation and fair presentation of these financial

statements. This responsibility includes: (1) preparing the Financial Statements in accordance

with the accounting standards for business enterprise (2) designing, implementing and

maintaining internal control relevant to the preparation and fair presentation of financial

statements that are free from material misstatement, whether due to fraud or error.

2. Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with the Standards on Auditing for Certified Public

Accountants. Those standards require that we comply with ethical requirements and plan and

perform the audit to obtain reasonable assurance whether the financial statements are free from

material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,

including the assessment of the risks of material misstatement of the financial statements, whether

due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the entity’s preparation of the financial statements in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness

of accounting policies used and reasonableness of accounting estimates made by management, as

well as evaluating the overall presentation of the financial statements.

WUYIGE Certified Public Accountants LLP. Telephone: +86 (10) 82330558 15/F, Xueyuan International Tower Fax: +86 (10) 82327668 1 Zhichun Road, Haidian Dist Internet: www.daxincpa.com.cn Beijing, China. 100083

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

3. Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the

Company as of December 31, 2015, and of its financial performance and cash flow for the year of

2015 then ended in accordance with the Accounting Standards for Business Enterprises and

China Accounting System for Business Enterprises.

WUYIGE Certified Public Accountants LLP.

Beijing China

China Certified Public Accountant: Xiang Xin (sig)

China Certified Public Accountant: Peng Xiang (sig)

January 29th, 2016

WUYIGE Certified Public Accountants LLP.

1101080210400 (SEAL)

China Certified Public Accountant: Xiang Xin (SEAL)

China Certified Public Accountant: Peng Xiang (SEAL)

Balance Sheet

Prepared by: Hubei Granules Biocause Pharmaceutical Company LTD. December 31st, 2015 Currency: Yuan

Item Note Balance At

End of Year

Balance At

Beg. Of Year

Current Assets:

Bank and Cash 5.(1) 17,234,863.98 16,906,304.73

Financial assets measured at fair value and whose movements are

included in the profit and loss of the current period

Derivative financial assets

Notes Receivable 5.(2) 6,421,698.70 2,483,327.05

Accounts Receivable 5.(3) 46,548,962.96 27,189,036.12

Prepayment 5.(4) 3,040,308.07 683,365.12

Interests Receivable

Dividend Receivable

Other Receivables 5.(5) 2,392,871.69 45,825,391.34

Inventories 5.(6) 26,023,545.91 44,524,165.08

Assets classified as available for sale

Non-current assets matured within one year

Other current assets

Total current assets 101,662,251.31 137,611,589.44

Non-current assets

Available-for-sale financial assets

Held-to-maturity investment

Long-term receivables

Long-term equity investment

Investment property

Fixed assets 5.(7) 21,416,853.79 23,910,067.62

Construction in progress 5.(8) 1,213,216.49

Construction materials

Disposal of fixed assets

Bearer biological assets

Oil and gas assets

Intangible assets 5.(9) 2,188,333.00 3,501,333.04

Development costs

Goodwill

Long-term deferred expenses

Deferred income tax assets 5.(10) 371,547.34 1,247,650.44

Other non-current assets

Total of non-current asses 25,189,950.62 28,659,051.10

Total of Assets 126,852,201.93 166,270,640.54

Legal representative: Financial Manager: People in Charge of Accounting Agency:

Hubei Granules Biocause

Pharmaceutical Company LTD. (SEAL)

Cheng Zhigang (SEAL) Yi Yanhao (SEAL) Yi Yanhao (SEAL)

Balance Sheet

Prepared by: Hubei Granules Biocause Pharmaceutical Company LTD. December 31st, 2015 Currency: Yuan

Item Note Balance At

End of Year

Balance At

Beg. Of Year

Current Liabilities:

Short-term loan 5.(11) 20,000,000.00 20,000,000.00

Financial liabilities measured at fair value and whose movements

are included in the profit and loss of the current period

Derivative financial liabilities

Notes payable

Accounts payable 5.(12) 8,786,743.13 36,254,393.90

Advance receipts 5.(13) 3,030,758.02 815,848.46

Employee benefits payable 5.(14) 2,027,875.22 1,667,625.03

Taxes payable 5.(15) 558,380.54 -793,445.15

Accrued interest payable

Dividend payable

Other payables 5.(16) 4,351,908.62 26,843,198.50

Liabilities classified as available for sale

Non-current liabilities falling due within one year

Other current liabilities

Total current liabilities 38,755,665.53 84,787,620.74

Non-current liabilities:

Long-term loan

Payable bonds

Long-term payables

Long-term accrued payroll

Special accounts payable

Provision for liabilities

Deferred income

Deferred income tax liabilities

Other non-current liabilities

Total of non-current liabilities

Total of liabilities 38,755,665.53 84,787,620.74

Owners' equity

Paid-up capitals 5.(17) 66,000,000.00 66,000,000.00

Other equity instruments

Capital reserve 5.(18) 45,604.99 45,604.99

Less: treasury stock

Other comprehensive income

Special reserves

Surplus reserve 5.(19) 2,543,054.46 1,881,702.80

Retained profit after appropriation 5.(20) 19,507,876.95 13,555,712.01

Total of owners' equity 88,096,536.40 81,483,019.80

Total of liabilities and owners' equity 126,852,201.93 166,270,640.54



Legal representative: Financial Manager: People in Charge of Accounting

Agency:


Income Statement

Prepared by: Hubei Granules Biocause Pharmaceutical Company LTD. Year 2015 Currency: Yuan

Item Note Amount This

Year

Amount Last

Year

1. Operating income and operating costs 5.(21) 226,942,369.86 225,166,210.97

Less: operating costs 5.(21) 201,341,591.44 206,893,772.41

Operating tax and surtax 5.(22) 1,228,341.89 756,511.93

Selling expenses 6,883,892.86 5,460,199.99

Administration expenses 8,178,041.30 9,391,587.27

Financial expenses 5.(23) 342,551.66 2,362,021.39

Asset impairment 5.(24) 619,099.13 -552,903.23

Add: Profits or losses on the changes in fair value

Investment income

Including: Investment income from affiliated

business and joint enterprise

2. Operating profits 8,348,851.58 855,021.21

Add: Non-operating income 5.(25) 798,382.00 453,209.42

Including: Gains from disposal of non-current assets

Less: Non-operating expenses 5.(26) 227,308.12 445,620.16

Including: Losses from disposal of non-current assets 187,637.89 332,031.92

3. The total of profit 8,919,925.46 862,610.47

Less: Income tax expenses 5.(27) 2,306,408.86 231,380.35

4. Net profit 6,613,516.60 631,230.12

5. Net of tax from other comprehensive income

1).Other comprehensive incomes that cannot reclassified into

profits and losses

2). Other comprehensive income that will be reclassified into

profit and loss

6. The total of comprehensive income 6,613,516.60 631,230.12

7. Per-share earnings

(1) Basic per-share earnings (Yuan/share)

(2) Diluted per-share earnings (Yuan/share)





Cash Flow Statement


Item Note Amount This

Year Amount Last Year

1. Cash flow from operating activities

Cash from selling commodities or offering labor 217,197,124.33 252，477，626.59

Refund of tax and fee received 3,591,891.82 8,591,233.70

Cash received related to other operating activities 47,472,045.17 49,575,227.10

Sub-total of cash inflows from operating activities 268,261,061.32 310,644,087.39

Cash paid for goods and services 207,057,615.08 227,543,736.98

Cash paid to and on behalf of employees 17,650,885.96 18,492,284.28

Payments of all types of taxes 4,679,098.88 2,203,684.51

Other cash paid relating to operating activities 34,120,202.72 53,048,406.76

Sub-total of cash outflows from operating activities 263,507,802.64 301,288,112.53

Net cash flows from operating activities 4,753,258.68 9,355,974.86

2. Cash flows from investing activities

Cash received from disposal of investments

Cash received from returns on investments

Net cash received from disposal of fixed assets, intangible assets & other long-term assets 31,762.70 58,114.19

Net cash received from disposal of subsidiary and other business units

Other cash received relating to investing activities

Sub-total of cash inflow from investment activities 31,762.70 58,114.19

Cash paid to acquire fixed assets, intangible assets & other long term assets 3,166,960.39 1,768,828.78

Cash paid to acquire investments

Net cash outflows for procurement of subsidiaries andother business units

Other cash payments relating to investing activities

Sub-total of cash outflow from investment activities 3,166,960.39 1,768,828.78

Net cash flows from investing activities -3,135,197.69 -1,710,714.59

3. Cash flows from financing activities

Cash received from capital contribution

Cash received from borrowings 20,000,000.00 42,856,572.80

Other cash received relating to financing activities

Sub-total of cash inflow from investment activities 20,000,000.00 42,856,572.80

Cash repayments of amounts borrowed 20,000,000.00 57,856,572.80

Cash payments for interest expenses and distribution of dividends or profit 1,289,501.74 2,030,467.71

Other cash payments relating to financing activities

Sub-total of cash inflow from investment activities 21,289,501.74 59,887,040.51

Net cash flows from financing activities -1,289,501.74 -17,030,467.71

4. Effect of changes in foreign exchange on cash

5. Net increase in cash and cash equivalents at beg. of year 328,559.25 -9,385,207.44

Add: cash and cash equivalents balance 16,906,304.73 26,291,512.17

6. Net increase in cash and cash equivalents at end of year 17,234,863.98 16,906,304.73





Statement of Changes in Owners’ Equity


Item

Amount This Year

Paid-in

capital

Other equity

instruments

Capital

surplus

Less:

Treasur

y stock

Other

comprehensive

income

Special

reserves

Surplus

reserve

Undistributed

profit

Owners’

equity

1. Balance at the end of prior year 66,000,000.00 45,604.99 1,881,702.80 13,555,712.01 81,483,019.80

Add: Accounting policy changes

Corrections of prior period errors

Others

2. Balance at the beginning of current year 66,000,000.00 45,604.99 1,881,702.80 13,555,712.01 81,483,019.80

3. Amount of change in current year (“-” means less)

661,351.66 5,952,164.94 6,613,516.60

(1). Total of comprehensive income 6,613,516.60 6,613,516.60

(2) Capital contributed or decreased by owner

1). Common shares of the owner

2). Holders of other equity instruments

invested capital

3). The amount of share-based

payments recorded in owners’ equity

4). Others

(3) Profit distribution 661,351.66 -661,351.66

1). Appropriation of surplus reserve 661,351.66 -661,351.66 661,314.98

2). Distributions to shareholders

3). Others

(4) Transfers within the owners’ equity

1). Capital transferred from capital surplus

2). Capital transferred from surplus reserve

3). Recovery of losses by surplus reserve

4). Others

(5) Special reserves

1). Extracted in current year

2). Used in current year

(6) Others

4. Balance at the end of current year 66,000,000.00 45,604.99 2,543,054.46 19,507,876.95 88,096,536.40





Statement of Changes in Owners’ Equity


Item

Amount Last Year

Paid-in

capital

Other equity

instruments

Capital

surplus

Less:

Treasur

y stock

Other

comprehensive

income

Special

reserves

Surplus

reserve

Undistributed

profit

Owners’

equity

1. Balance at the end of prior year 66,000,000.00 45,604.99 1,881,702.80 12,924,481.89 80,851,789.68

Add: Accounting policy changes

Corrections of prior period errors

Others

2. Balance at the beginning of current year 66,000,000.00 45,604.99 1,881,702.80 12,924,481.89 80,851,789.68

3. Amount of change in current year (“-” means less)

631,230.12 631,230.12

(1). Total of comprehensive income 631,230.12 631,230.12

(2) Capital contributed or decreased by owner

1). Common shares of the owner

2). Holders of other equity instruments

invested capital

3). The amount of share-based

payments recorded in owners’ equity

4). Others

(7) Profit distribution

1). Appropriation of surplus reserve

2). Distributions to shareholders

3). Others

(8) Transfers within the owners’ equity

1). Capital transferred from capital surplus

2). Capital transferred from surplus reserve

3). Recovery of losses by surplus reserve

4). Others

(9) Special reserves

1). Extracted in current year

2). Used in current year

(10) Others

4. Balance at the end of current year 66,000,000.00 45,604.99 1,881,702.80 13,555,712.01 81,483,019.80





Hubei Granules Biocause Pharmaceutical Company LTD Notes to Financial Statements

January 1st, 2015 --- December 31st, 2015

Hubei Granules Biocause Pharmaceutical Company LTD.

Notes to Financial Statements

(Unless otherwise specified, all currencies herein should be in CYN)

1. Company Introduction

1) Company profile

Hubei Granules Biocause Pharmaceutical Company Ltd. (“the Company”) is a joint venture

company established by and between Hubei Biocause Pharmaceutical Co., Ltd. and Granules

India Limited with a registered capital of RMB 66,000,000.00, 50% of which is held by Hubei

Biocause Pharmaceutical Co., Ltd. and Granules India Limited respectively. The Company was

approved by Jingmen Administration Bureau of Industry and Commerce on March 5 th, 2007.

Legal representative: Cheng Zhigang

Business license No.: 420800400000266

Registered address: #122 Yangwan Road, Jingmeng, Hubei Province

Company type: Limited Liability Company (Chinese-Foreign Equity Joint Venture)

Business scope: design, development, production and processing of ibuprofen of various

levels as API as well other new products; providing technical support and after-sale services;

promotion and sales of aforementioned products. (If any approval is needed for any business

activities, such business activities shall be carried out after such approval)

2) This financial statement shall be released after being approved by the Board of the

Company on January 29th, 2016.

2. The Basis of Financial Statement Preparation

1) Preparation basis: The financial statement shall be based on the continuous operation

and dealings and transactions happened or otherwise will happened, it shall be prepared

in accordance to the Accounting Standard for Business Enterprises- Basic Standard

enacted by the Ministry of Finance, specific accounting standards and regulations

(collectively “enterprise accounting standard”), as well as the following significant

accounting policies and accounting estimates.

2) Continuous operation: the Company shall have the capacity of continuous operation for

12 months since the end of this current year. There shall be no significant item that can

affect the Company’s capacity of continuous operation.

3. Significant Accounting Policies and Accounting Estimates

1) Compliance with enterprise accounting standard

The financial statement prepared by the Company shall meet all requirements of

Accounting Standard for Business Enterprises, and it truly reflects the financial situation

of the Company as of December 31st, 2015 as well as such information as the

performance and cash flow of the company.

2) Fiscal period

The company adopts calendar year as its fiscal period, i.e. from January 1st to December

31st.

3) Operational cycle

The fiscal period of the Company shall be one year (12 months), which shall also be

used to measure the fluidity of assets and liabilities.

4) Bookkeeping base currency

RMB is used as the bookkeeping base currency of the Company.

5) The standard for recognizing cash equivalent



In the preparation of the cash flow statement, cash on hand and deposits readily to be

paid is recognized as cash, and short-term, highly liquid and readily convertible to know

amounts of cash with insignificant risk of changes in value are recognized as cash

equivalent.

6) Foreign currency transaction and translation of foreign currency financial statement

(1) Foreign currency transaction translation

The amount in the foreign currency shall be translated into the amount in the

functional currency at the spot exchange rate of the transaction date, or at an

exchange rate which is determined through a systematic and reasonable method and

is approximate to the spot exchange rate of the transaction date. The foreign

currency monetary items as of the date of Balance Sheet shall be translated at the

spot exchange rate on the balance sheet date. The balance of exchange arising from

the difference between the spot exchange rate on the balance sheet date and the spot

exchange rate at the time of initial recognition or prior to the balance sheet date shall

be recorded into the profits and losses at the current period. The foreign currency

non-monetary items measured at the historical cost shall still be translated at the

spot exchange rate on the transaction date, of which the amount of functional

currency shall not be changed. The foreign currency non-monetary items measured

at fair value shall be translated at the spot exchange rate on the fair value

measurement date, the difference from the bookkeeping currency and such foreign

currency after the translation shall be regarded as the fair value change (including

exchange rate change), and it shall be recorded into the profits and losses at the

current period or recorded as other comprehensive income.

(2) Translation of Foreign Currency Financial Statements

Where the holding subsidiary, joint venture company, and associated company of

the Company adopts a bookkeeping base currency which is difference from that of

the Company, financial accounting and consolidated financial statements shall be

prepared after the translation of foreign currency financial statements. The asset and

liability items in the balance sheets shall be translated at a spot exchange rate on the

balance sheet date. Among the owner's equity items, except the ones as

"undistributed profits", others shall be translated at the spot exchange rate at the

time when they are incurred. The income and expense items in the profit statements

shall be translated at the spot exchange rate of the transaction date, or at a spot

exchange rate which is approximate to the spot exchange rate of the transaction date.

The balance arisen from the translation of foreign currency financial statements shall

be presented separately under the owner's equity item of the balance sheets. Where

foreign currency cash flow is determined through a systematic and reasonable

method, exchange rate approximate to the spot exchange rate of the transaction date

shall be adopted in the translation. The impact exchange rate change has to cash

shall be presented separated in cash flow statement. When disposing an overseas

business, an enterprise shall shift the balance, which arises from the translation of

foreign currency financial statements related to this oversea business, into the

disposal profits and losses of the current period.

7) Financial instruments

(1) Classification and recognition of financial instruments



Financial instruments are classified as financial assets and financial liabilities. When

the Company enters into a contract of financial instrument, it should be recognized

as financial asset or financial liability.

The company at the time of initial recognition of financial assets divides it into:

financial assets measured at fair value with changes included in the profit or loss of

this period, held-to-maturity investments, loans and receivables and financial assets

available for sale. The classification of all items apart from accounts receivable shall

depend on the Company’s or its subsidiary’s intention as well as ability of holding

such financial assets. The company at the time of initial recognition of financial

liabilities divides it into: financial liabilities and other financial liabilities measured

at fair value with changes included in the profit or loss of this period.

Financial asset measured at fair value with changes included in the profit or loss of

this period refer to the short-term sales financial assets, including financial assets

held for trading or financial assets measured at fair value with changes included in

the profit or loss of this period designated upon initial recognition by the

management; the non-derivative financial assets without the price in an active

market and with fixed and determinable recovery cost are classified as loans and

receivables; financial assets available for sale include non-derivative financial assets

available for sale recognized initially and other non-derivative financial assets no

classified as other financial assets; held-to-maturity investments: the non-derivative

financial assets with clear intention and ability to hold to maturity by the

management of the company, a fixed maturity date and fixed or determinable

payments are classified as held-to-maturity investments.

(2) Measurement of financial instruments

The initial values of financial assets and financial liabilities shall be measured with

their fair values. They should be classified as: financial assets measured at fair value

with changes included in the profit or loss of this period, financial liabilities

available for sale, and financial assets measured at fair value with changes included

in the profit or loss of this period; held-to-maturity investments, loans and accounts

receivable; equity instrument investments without the price in an active market and

without determinable measures, derivative assets or liabilities connected to and

settled by delivery of such equity (accounted for with the cost). The gaining and

losses of the Company arising from the fair value change of the Company’s

financial assets and liabilities shall be handled (except for hedging): ① loses or

gaining arising from the change of fair price of the financial assets or liabilities shall

be included in fair value change loses or gaining. ② the fair value change of

financial assets to be sold shall be included in other comprehensive incomes.

(3) Determination of the fair value of financial instruments

If financial instruments trade in an active market, the quoted price in an active

market determines its fair value; if financial instrument trade not in an active market,

the valuation techniques determine the fair value. Valuation techniques include

recent market transaction price reference to the familiar situation and volunteer

transaction, current fair value reference to other substantially similar financial

instruments, discounted cash flow method and option pricing model and so on.

(4) Recognition and measurement for transfer of financial assets



If the Company has transferred nearly all of the risks and rewards relating to the

ownership of the financial assets to the transferee, they shall be derecognized. If it

retains nearly all of the risks and rewards relating to the ownership of the financial

assets, they shall not be derecognized and will be recognized as a financial liability.

If the Company has not transferred nor retained nearly all of the risks and rewards

relating to the ownership of the financial assets: to give up the control of the

financial assets to be derecognized; not giving up control of the financial asset to be

recognized based on the extent of its continuing involvement in the transferred

financial assets and liabilities are recognized accordingly.

Financial liabilities shall be entirely or partially derecognized if the present

obligations derived from them are entirely or partially discharged.

(5) Impairment loss on financial assets

If financial asset measured at amortized cost has been impaired, the carrying amount

of the financial asset is written down to the present value of estimated future cash

flows (excluding future credit losses that have not yet occurred), and the amount of

reduction is recognized as impairment loss and is recognized in the profit or loss of

this period, and provisions for impairment loss shall be made accordingly. If

there is objective evidence that the value of financial asset has been restored and

recognized relevant to the objective matters occurring after the impairment,

previously recognized impairment loss shall be reversed and charged into the profit

or loss of this period.

If financial asset measured at cost has been impaired, the carrying amount of the

financial asset is written down to the present value of estimated future cash flows

(excluding future credit losses that have not yet occurred), and the amount of

reduction is recognized as impairment loss and is recognized in the profit or loss of

this period, and provisions for impairment loss shall be made accordingly. All

confirmed losses shall not be reversed.

If there is objective evidence that an impairment of available for sale financial assets

occurs, even though the financial asset has not been derecognized, the cumulative

loss of decrease of the faire value originally recorded in the owner's equity should be

transferred out and charged into the current profit and loss. The cumulative loss is

the initial acquisition cost of available for sale financial assets, deducting the fair

value of the withdrawing principal and amortization amount and impairment loss as

well as net impairment amount originally charged into the profit or loss.

For investments in equity instruments, the specific quantitative criteria, cost

calculation methods, and fair value determination methods the Company adopts in

determining if the decrease is “serious” or “non-temporary” as well as in

determining the continuous decrease period shall be:

Specific quantitative criteria for “serious” fair value decrease

Closing fair value relative to cost declines have

decreased up to or more than 50%.

Specific quantitative criteria for “non-temporary” fair

value decrease

12 consecutive months of decrease

Cost calculation methods The total of give value (after deduction of cash

dividends declared but not yet paid or bond interest to

pay the total but not yet received) and the related


January 1st, 2015 --- December 31st, 2015 transaction costs shall be investment cost.

The method of determining the fair value of at the end of

the year

For financial instruments that have active market, it

should be the price in active market; otherwise, the fair

value shall be measured by estimation techniques.

The basis for continuous decrease period Falling or falling trend for the duration of the rate of

increase is less than 20% rebound, rebound duration

not exceeding six months as the monarch during the

decline.

8) Accounts receivable

The accounts receivable of the Company include debt receivable, long-term accounts

receivable, and other receivables. If there is objective evidence as of balance sheet date

that impairment has occurred, based on the difference of the present value of future cash

flows less than the book value, the impairment loss is recognized.

If there is objective evidence that certain accounts receivables can not be recovered, the

impairment loss shall be recognized after being approved according to related

procedures, and the provision for bad debts shall be made. The company does not

account for the bed debts of its subsidiaries. For accounts receivable for which objective

evidence indicate obvious change, separate recognition shall be carried out for the

provision for bad debts.

(1) Individual items are individually significant and receivables provision for bad debts

Standard for single significant amount or amount Accounts receivable book balance of more than 10

million yuan (including 10 million)

Significant single amount and single provision for bad

debt provision method

Separate impairment test, there is objective evidence that

an impairment has occurred based on the difference

between the present value of future cash flows is less

than its book value, provision for bad debts, have been

tested without impairment according to age analysis

accrual bad debts

(2) Provision for bad debts in combination

For accounts receivable with insignificant values and those that have not been

impaired after individual test, provisions for bad debts shall be made by aging status.

Determined based on a combination of Aging status

Provisions for impairment provision Aging analysis

In the combination, age analysis provision shall be per:

Aging Accounts receivable ratio (%) Other receivables (%)

Within 1 year (including 1 year) 3 3

1-2 years (including 2 years) 10 10




Over 5 years 100 100



9) Inventory

(1) Classification of inventory

Inventory includes the final products held or stored for the purpose of selling, or the

products that are in the process of manufacture for the purpose of selling, or the

materials or consumables to be used in production or in the process of providing

labors. It includes raw materials, packing material, low-value consumables, half-

finished products, finished products (in stock), and etc.

(2) Valuation of inventory dispatched

Weighted average method shall be used for the cost of inventory dispatched.

(3) Provision for inventory price decrease

For those items whose cost can’t be recovered due to damages to inventories, part or

all of the inventory goes out of season, or whose price is lower than the cost,

inventory falling price loss shall be the cost of each item less the net value of the

liquidation; for materials used in production, if the final products produced by such

materials is higher than the cost, the materials shall be priced as their cost, if the

final products produced by such materials is lower than the cost, such materials shall

be priced as the net value of the final products produced.

(4) Inventory system

The Company adopts perpetual inventory system.

(5) Amortization of low-value consumables

Direct Write-off Method shall be adopted for amortization of low-value

consumables.

10) Long-term equity investments

(1) Initial investment cost measurement

For long-term equity investment through merger, e.g. enterprise (controlled by the

same company) merger, the initial cost shall be obtained by the book value of the

share being merged; if they are not controlled by the same company, the cost of such

merger shall be used as the initial cost; for long-term equity investment obtained by

cash, the initial investment cost shall be the actual payment of the purchase price;

for long-term equity investment by issuing equity securities, the initial investment

cost is the fair value of issued equity securities; for long-term equity investment

acquired through debt restructuring, its initial investment cost should be according

to the related regulations of "Accounting Standards for Enterprises No. 12 – Debt

Restructuring"; for long-term equity investment by non-monetary asset exchange,

the initial investment cost is determined based on relevant regulations.

(2) Subsequent measurement and profit and loss confirmation method

Where the investor can essentially control the company it invested, the book value

shall be measured as the cost of the long-term equity measurement. Where such

equity investment to affiliated company and joint venture company is made through

investment institute, mutual fund, trust company or other similar bodies including

insurance fund, such indirect investment shall be measured by the fair value with its

change recorded in balance sheet, and the remaining part shall be measured by

equity method in accordance to Accounting Standards for Enterprises No. 22–

Recognition and Measurement of Financial Instruments.

(3) The basis to decide the joint control and significant influence to the invested

company



Joint control to the invested company means unanimous decisions have to be made

together with the other party of joint control before activities having significant

influence to be carried out including the sale or purchase of commodity or labor,

financial asset management, asset purchase and disposal, R&D activities and

financing activities; significant influence means having 20% to 50% voting equity.

11) Fixed assets

(1) Recognition criteria of fixed assets

Fixed assets refer to tangible assets held for the purpose of producing commodities,

providing services, renting or business management with useful lives exceeding one

accounting year and high unit value. Classification of fixed assets: buildings and

constructions, machinery equipment, transport equipment and office equipment.

(2) Fixed assets classification and depreciation method

The fixed asset of the Company is classified as: buildings and constructions,

machinery equipment, special equipment, transportation equipment, other

equipment. It is priced based on actual cost and depreciated in a straight-line method.

The estimated useful lives, estimated residual rate and annual depreciation rate of

various s categories of fixed assets are listed as follows:

Category of fixed assets Estimated useful lives

(year)

Estimated residual rate (%) Annual depreciation rate

Buildings and constructions 18—38 4 2.53—5.33

Machinery equipment 5—14 4 6.85—19.20

Special equipment 8—10 4 9.60—12.00

Transport equipment 6—8 4 12.00—16.00

Other equipment 5—10 4 9.60—19.20

(3) The recognition of financing lease and its pricing

Financing lease is lease that essentially transferred all risks and rewards related to

the ownership of such assets.

12) Construction in progress

The construction in progress of the Company include self-operating and outsourcing.

After the completion and handover of the construction, the book value of fixed assets

shall be adjusted.

13) Borrowings

(1) Borrowing costs that are directly attributable to the acquisition, construction or

production of qualifying assets for capitalization should be charged into the

relevant costs of assets and therefore should be capitalized. Borrowing costs

incurred after qualifying assets for capitalization reaches the estimated use state

are charged to profit or loss in the current period. Other borrowing costs are

recognized as expenses based on the accrual and are charged to profit or loss in the

current period.

(2) Capitalization of borrowing

Capitalization period is a period from the beginning of capitalization cost to the

end with the period in which capitalization cost is paused being excluded. Where

abnormal stoppage longer than 3 months happens in construction in progress,

capitalization of borrowing shall be paused.

Where special funds are borrowed, costs eligible for capitalization are the actual

interest costs incurred in current period less the interest income of unused

borrowing funds deposited in the bank or any income earned on the temporary

http://www.baidu.com/link?url=FMnyuRCuuYGyWbgpFyTHmRg3wCj2WxBrMHVsOFd9S37Vo0s2xMSrmlIEDkSy0FkO1jm_qEm-gYHJgJp0LCC0EJ_u3Xaqt-dF0Fd9EIH00E4Uef5yljZ4BuCEVL4zzQ0v



investment of such borrowings; Where funds allocated for purchase, construction

or manufacturing of assets

Where borrowing eligible for capitalization as part of a general pool, the eligible

capitalization interest amounts are determined by multiplying g a capitalization

rate of general borrowing by the weighted average of accumulated capital

expenditures over those on specific borrowings. The capitalization rate will be

determined based on the weighted average rate of the borrowing costs applicable

to the general pool.

14) Intangible assets

(1) Pricing of the intangible assets

The initial measurement of the intangible assets of the Company shall be as per the

cost. The cost of outsourcing intangible assets shall be priced based on the actual

expenditure directly attributable to intangible assets for the expected purpose. The

intangible asset of investment is in accordance with the agreed value of the

investment contract or agreement as costs, excluding not fair agreed value of the

contract or agreement. Expenditure on internal research and development projects

is charged into the current profit or loss, and expense in the development stage can

be recognized as intangible costs if meeting the criteria for capitalization.

The pricing method of intangible assets: as for the intangible assets with limited

service life, it is amortized by straight-line method when it is available for use

within the service period. As for unforeseeable period of intangible assets bringing

future economic benefits to the company, it is regarded as intangible assets with

uncertain service life, and intangible assets with uncertain service life can not be

amortized.

(2) The recognition of uncertain use life

The Company sees the situation where the period under which such asset may

bring economic benefit is not foreseeable or intangible assets with uncertain use

life as intangible assets with unforeseeable use life. The recognition criteria is:

derived from contractual rights, where there’s no specific use life in such contract

or laws and regulations; the period under which the intangible asset may bring

economical benefits can’t be determined in reference with similar cases in the

same industry.

(3) Criteria to determine research and development stage of internal R&D project as

well as the compliance with capitalization in R&D project.

The expenditure of internal R&D project shall be recorded into current profit &

loss; where expenditure in R&D stage meets intangible assets, it should be

transferred to intangible assets.

15) Impairment of long-term assets

Where there’s impairment for long-term investment such as long-term equity

investments, real property investment, fixed assets, construction in progress,

production assets recorded at price method, oil & gas assets, intangible assets and

goodwill, impairment test shall be carried out.

The recoverable amount shall be determined in light of the higher one of the net

amount of the fair value of the assets minus the disposal expenses and the current value

of the expected future cash flow of the assets. 18Where there is any evidence

indicating a possible impairment of assets, the enterprise shall, on the basis of single

item assets, estimate the recoverable amount. Where it is difficult to do so, it shall

determine the recoverable amount of the group assets on the basis of the asset group to

which the asset belongs.



Impairment test shall be carried out at least annually for goodwill which is presented

separately in financial statement, regardless if there’s any sign of impairment. When an

enterprise makes an impairment test of assets, it shall, as of the purchasing day,

apportion the carrying value of the business reputation formed by merger of enterprises

to the relevant asset groups by a reasonable method. Where it is difficult to do so, it

shall be apportioned to the relevant combinations of asset groups. When apportioning

the carrying value of the business reputation to the relevant asset groups or

combinations of asset groups, it shall be apportioned on the basis of the proportion of

the fair value of each asset group or combination of asset groups to the total fair value

of the relevant asset groups or combinations of asset groups.

16) Long-term deferred expenses

The long-term deferred expense refers to all expenses that have been spent but

recovery period is longer than 1 year (1 year not included). Long-term deferred

expense shall be amortized in recovery period.

17) Salary payable to staff

The staff ' salary means that the enterprise gives various remunerations and other

relevant expenses to employees for obtaining services provided by the employees in

the accounting period, including staff's salary, bonus, allowance and subsidy, staff’s

welfare, hospitalization insurance, endowment insurance, unemployment insurance,

occupational injury insurance and childbirth insurance and other social insurances as

well as housing public reserve and so on.

(1) Short-term salary

Short-term employee benefits are employee" benefits (other than compensation for

termination of employment relationship) that are expected to be settled wholly before

twelve months after the end of the annual reporting period in which the employees

render the related service. Short-term employee benefits include: employee wages or

salaries, bonus allowance subsidies staff welfare insurance and maternity insurance,

housing funds, union running costs and employee education costs, short-term paid

absences, short-term profit-sharing plan, non-monetary benefits and other short-term

benefits.

(2) Post employment benefit

Post-employment benefits are any remuneration and benefits (other than short-

term employee benefits and termination benefits) in exchange for service rendered

by employees that are payable after the retirement of the employees or termination

of employment relationship.

(3) Termination benefit

Post-employment benefits are any remuneration and benefits (other than short-

term employee benefits and termination benefits) in exchange for service rendered

by employees that are payable after the retirement of the employees or termination

of employment relationship. Termination benefits are compensation provided

when an enterprise decides to terminate the employment relationship with

employees before the end of the employment contracts, or compensation provided

as an offer.

(4) Other long-term benefit

Other long-term employee benefits are all employee benefits other than short-term

employee benefits, post-employment benefits and termination benefits. Other long-

term employee benefits include long-term paid absences, long-term disability

benefits, and long-term profit-sharing plan.

18) Revenue



(1) Sales of products

The revenue from selling goods shall be recognized when meeting all following

conditions: ① the significant risks and rewards of ownership of the goods have been

transferred to the buyer by the Company; the Company retains neither continuous

management right that usually keeps relation with the ownership nor effective

control over the sold goods; ③ the amount of revenue can be measured in a reliable

way; ④ it is probable that the economic benefits associated with the transaction will

flow to the enterprise; ⑤ the relevant costs can be measured reliably.

If the collection of the price as stipulated in the contract or agreement is delayed

and if it has the financing nature, the revenue incurred by selling goods shall be

ascertained in accordance with the fair value of the receivable price as stipulated in

the contract or agreement.

The principle of ascertaining payment receipt per contacts or agreements shall be:

the Company dispatches the goods, and the buyer accepts such goods without

objection. The payment amount is certain and has been received, and cost is reliably

measurable.

(2) Providing labor service

If an enterprise can, on the date of the balance sheet, reliably estimate the outcome

of a transaction concerning the labor services it provides, it shall recognize the

revenue from providing services employing the percentage-of-completion method.

If an enterprise can not, on the date of the balance sheet, measure the result of a

transaction concerning the providing of labor services in a reliable way, it shall be

conducted in accordance with the following circumstances, respectively: ① If the

cost of labor services incurred is expected to be compensated, the revenue from the

providing of labor services shall be recognized in accordance with the amount of

the cost of labor services incurred, and the cost of labor services shall be carried

forward at the same amount; ② If the cost of labor services incurred is not expected

to compensate, the cost incurred should be included in the current profits and losses,

and no revenue from the providing of labor services may be recognized.

(3) Revenue from Abalienating the Right to Use Assets

The Company ascertains the amount of revenues from the abalienating of right to

use assets when relevant economic benefits are likely to flow into the Company and

the amount of revenues can be measured in a reliable way.

19) Government subsidies

(1) Accounting of government subsidies pertinent to assets

Government assets that are obtained by enterprises used for purchase or

construction, or forming the long-term assets by other ways, and government

subsidies pertinent to assets shall be recognized as deferred income, equally

distributed within the useful lives of the relevant assets, and included in the current

profits and losses. But the government subsidies measured at their nominal amounts

shall be directly included in the current profits and losses.

(2) Accounting of government subsidies pertinent to incomes

All government subsidies except for those pertinent to assets are regarded as

government subsidies pertinent to incomes. The government subsidies pertinent to

incomes shall be treated respectively in accordance with the circumstances as

follows: Those subsidies used for compensating the related future expenses or

losses of the enterprise shall be recognized as deferred income and shall included in

the current profits and losses during the period when the relevant expenses are



recognized; Those subsidies used for compensating the related expenses or losses

incurred to the enterprise shall be directly included in the current profits and losses.

Criteria for the difference between government subsidies pertinent to assets and

government subsidies pertinent to incomes

If government documents do not specify the target company for the subsidy, the

criteria in separating government subsidies pertinent to assets and government

subsidies pertinent to incomes shall be: ① if the document specifies the project for

the subsidy, it should be classified based on the proportion of the expenditures in

such project which will form assets against those that will be recorded as cost; ② if

general specification has been made in government document without specifying

specific project, it should be regarded as government subsidies pertinent to incomes.

20) Deferred income tax liability or deferred income tax asset

(1) Deferred income tax liability or deferred income tax shall be determined based on

the difference between the carrying value of income, liability and the tax base (As

for an item that has not been recognized as an asset or liability, if its tax base can

be determined in light of the tax law, the difference between the tax base and its

carrying amount shall also be a temporary difference.) in accordance with the tax

rate in the period in which such asset is recovered or liability is settled.

(2) The Company recognizes the deferred income tax liabilities arising from a

deductible temporary difference to the extent of the amount of the taxable income

which it is most likely to obtain and which can be deducted from the deductible

temporary difference. On the balance sheet date, where there is any exact evidence

showing that it is likely to acquire sufficient amount of taxable income tax in a

future period to offset against the deductible temporary difference, the deferred

income tax assets unrecognized in prior periods shall be recognized.

(3) Where the deductible temporary difference related to the investments of the

subsidiary companies, associated enterprises and joint enterprises can meet the

following requirements simultaneously, the enterprise shall recognize the

corresponding deferred income tax assets: the investing enterprise can control the

time of the reverse of temporary differences; and temporary differences are

unlikely to be reversed in the excepted future. For deferred income tax liabilities

arising from a deductible temporary difference to the extent of the amount of the

taxable income which it is most likely to obtain and which can be deducted from

the deductible temporary difference.

21) Changes in accounting policies and accounting estimates

(1) Changes in accounting policies

There’s no change in accounting policies during the period of the report.

(2) Changes in accounting estimates

There’s no estimate in accounting policies during the period of the report.

4. Tax

1) Main tax types and rates

Taxes Tax base Tax rate

VAT

17% or 13% VAT on sales, according to

the difference between the output tax

deductions deductible input VAT accrual

and payment

17%

Sales tax Taxable income 5%


January 1st, 2015 --- December 31st, 2015 Urban maintenance and

construction tax VAT payable, business tax 7%

Education surcharge VAT payable, business tax 3%

Levee fee VAT payable, business tax 2%

Local education surcharge VAT payable, business tax 2%

Corporate income tax Taxable income 25%

2) Preferential taxes and approval

No.

5. Important Notes to Financial Statements

1) monetary funds

Item

Balance At End of Year Balance At Beg. Of Year

Amount Wherein: amount in

foreign currency Amount

Wherein: amount in foreign

currency

Cash 769.60

Bank savings 13,519,032.49 5,007,705.09 12,456,583.30 4,145,291.70

Other monetary fund 3,715,061.89 4,449,721.43

Total 17,234,863.98 5,007,705.09 16,906,304.73 4,145,291.70

Note: 1. As of December 31, 2015, there’s no item associated with pledge, freezing and

other restrictions on the use, overseas deposit, and items with recovery risk;

2. Amount in other currency is guarantee.

2) Notes receivable

Item Balance At End of Year Balance At Beg. Of Year

Bank acceptance 6,421,698.70 2,483,327.05

Total 6,421,698.70 2,483,327.05

3) Accounts receivable

(1) Accounts receivable by category

Category

Balance At End of Year

Book balance Reserves for bad debts

Amounts Proportion (%) Amounts Accrued proportion (%)

Provisions for impairment of

receivables 47,990,356.03 100.00 1,441,393.07 3.00

Individually insignificant but

subject to separate provision for

accounts receivable

Total 47,990,356.03 100.00 1,441,393.07 3.00

Category

Balance At Beg. Of Year

Book balance Reserves for bad debts

Amounts Proportion (%) Amounts Accrued proportion (%)

Significant single amount and


January 1st, 2015 --- December 31st, 2015 single provision for accounts

receivable

Provisions for impairment of

receivables 28,033,382.62 100.00 844,346.50 3.01

Individually insignificant but

subject to separate provision for

accounts receivable

Total 28,033,382.62 100.00 844,346.50 3.01

(2) Provisions for impairment of receivables

In the form, accounts receivable bad debt reserves are analyzed by aging.

Aging Balance At End of Year Balance At Beg. Of Year

Book balance Proportion (%) Bad debts Book balance Proportion (%) Bad debts

In 1 year 47,980,459.63 3.00 1,439,413.79 27,985,596.48 3.00, 839,567.89

1-2 years 10.00 47,786.14 10.00 4,778.61

2-3 years 9,896.40 20.00 1,979.28 20.00

Total 47,990,356.03 1,441,393.07 28,033,382.62 844,346.50

(3) The top five in accounts receivable.

S.N. Relationship with the

Company Amount Debt age

Proportion in accounts

receivable（%）

1 Non-affiliate 21,037,904.37 Within 1 year 43.84





Total 30,431,734.87 63.41

4) Prepayments

(1) The aging analysis of the aging of advance payment


Amounts Proportion (%) Amounts Proportion (%)

Within 1 year 3,037,248.07 99.90 682,765.12 99.91

1-2 years 2,560.00 0.08 100.00 0.02

2-3 years 500.00 0.02 500.00 0.07

Total 3,040,308.07 100.00 683,365.12 100.00

(2) There’s no significant advance payment with aging exceeding 1 year.

(3) Top five prepayments

S.N. Relationship with the

Company Amounts Aging Proportion in total prepayment (%)


2 Non-affiliate 455,139.67 Within 1 year 14.97


January 1st, 2015 --- December 31st, 2015 3 Non-affiliate 284,353.06 Within 1 year 9.35



Total 2,524,684.73 83.04

5) Other receivables

(1) Other receivables by category

Category

Balance At End of Year

Book balance Bad debts


Significant individual amount and separate

impairment of other receivables

Provisions for impairment of receivables 2,437,667.97 100.00 44,796.28 1.84

Individually insignificant but subject to separate

provision for bad debts of other receivables

Total 2,437,667.97 100.00 44,796.28 1.84

Category

Balance At Beg. Of Year

Book balance Bad debts


Significant individual amount and separate

impairment of other receivables

Provisions for impairment of receivables 45,848,135.06 100.00 22,743.72 0.05

Individually insignificant but subject to separate

provision for bad debts of other receivables

Total 45,848,135.06 100.00 22.743.72 0.05

(2) Provisions for impairment of other receivables

In the form, accounts receivable bad debt reserves are analyzed by aging.


Book balance Proportion (%) Bad debts Book balance Proportion (%) Bad debts

Within 1 year 2,389,008.47 3.00 35,525.93 45,770,456.55 3.00 9,508.02

1-2 years 7,637.50 10.00 763.75 38,000.00 10.00 3,800.00

2-3 years 38,000.00 20.00 7,600.00 34,678.51 20.00 6,935.70

3-4 years 3,022.00 30.00 906.60

4-5 years 5,000.00 50.00 2,500.00

Total 2,437,667.97 44,796.28 45,848,135.06 22,743.72

(3) Top five in other accounts receivable

S.N. Relationship with

the Company Amounts Aging Proportion in total prepayment (%)

1 Unrelated parties 1,198,587.17 Within 1 year 49.17


January 1st, 2015 --- December 31st, 2015 2 Unrelated parties 638,120.86 Within 1 year 26.18

3 Unrelated parties 181,062.23 Within 1 year 7.43



Total 2,169,060.14 88.99

6) Inventory

Inventory

items


Book balance Devaluation Book value Book balance Devaluation Book value

Raw materials 11,889,447.81 11,889,447.81 13,036,896.16 13,036,896.16

Finished 14,134,098.10 14,134,098.10 31,487,268.92 31,487,268.92

Total 26,023,545.91 26,023,545.91 44,524,165.08 44,524,165.08

7) Fixed Assets

Item Balance At Beg.

Of Year Increase this year Decrease this year

Balance At End

of Year

1.Total original book value 56,705,445.54 1,953,743.90 608,290.28 58,050,899.16

Wherein: Houses and buildings 16,730,555.86 16,730,555.86

Mechanical equipment 39,974,889.68 1,953,743.90 608,290.28 41,320,343.30

2.Total accumulated

depreciation

32,795,377.92 4,230,925.81 392,258.36 36,634,053.37

Wherein: Houses and buildings 5,669,325.02 609,316.92 6,278,641.94

Mechanical equipment 27,126,052.90 3,621,608.89 392,258.36 30,355,403.43

3.Total net book value of fixed

assets

23，910,067.62 21,416,853.79


Mechanical equipment 12,848,836.78 10,964,939.87

4. Total impairment

Wherein: Houses and buildings

Mechanical equipment

5.Total book value of fixed

assets

23,910,067.62 21,416,853.79


Mechanical equipment 12,848,836.78 10,964,939.87

8) Construction in progress

Basic information of construction in progress.

Item


Book balance Impairment Book value Book

balance Impairment Book value

Environmental 1,213,216.49 1,213,216.49


January 1st, 2015 --- December 31st, 2015 project

Total 1,213,216.49 1,213,216.49

9) Intangible assets


Of Year

Increase this

year

Decrease this

year

Balance At End of

Year

1. Total original price 13,130,000.00 13,130,000.00

Of which: non-patented technology 13,130,000.00 13,130,000.00

2.Total accumulated amortization 9,628,666.96 1,313,000.04 10,941,667.00

Of which: non-patented technology 9,628,666.96 1,313,000.04 10,941,667.00

3.Total of impairment of intangible assets

Of which: non-patented technology

4.Total book value of intangible assets 3,501,333,04 2,188,333.00

Of which: non-patented technology 3,501,333.04 2,188,333.00

10) Deferred income tax assets

Item


Deferred income tax

assets

Deductible temporary

differences

Deferred income tax

assets

Deductible temporary

differences

Deferred tax assets:

Impairment of assets 371,547.34 1,486,189.35 216,772.56 867,090.22

Deductible losses 1,030,877.88 4,123,511.51

Total 371,547.34 1,486,189.35 1,247,650.44 4,990,601.73

11) Short-term borrowings

Loan Conditions Balance At End of Year Balance At Beg. Of Year

Mortgage 20,000,000.00 20,000,000.00

Total 20,000,000.00 20,000,000.00

12) Accounts payable


Within 1 year 8,215,609.87 35,918,870.56

1-2 years 314,525.75 46,229.33

2-3 years 28,018.50 113,614.71

Over 3 years 228,589.01 175,679.30

Total 8,786,743.13 36,254,393.90

13) Advances


Within 1 year (including 1 year) 2,991,893.12 753,562.45


January 1st, 2015 --- December 31st, 2015 More than 1 year 38,864.90 62,286.01

Total 3,030,758.02 815,848.46

14) Employee benefits payable


Of Year Increase this year Decrease this year

Balance At End

of Year

1. Salary, bonuses, allowances and subsidies 1,606,760.00 12,272,999.43 12,093,759.43 1,786,000.00

2. Employee benefits 941,845.00 941,845.00

3. Social insurance 3,402,613.79 3,402,613.79

Of which: 1). basic medical insurance 848,923.49 848,923.49

2). The basic old-age insurance 2,127,339.90 2,127,339.90

3). Unemployment insurance 239,491.55 239,491.55

4). Work Injury Insurance 115,617.08 115,617.08

5). Maternity insurance 71,241.77 71,241.77

4. housing fund 1,066,652.00 1,066,652.00

5.Union funds and employee education funds 60,865.03 327,025.93 146,015.74 241,875.22

Total 1,667,625.03 18,011,136.15 17,650,885.96 2,027,875.22

15) Taxes payable

Tax Balance At End of Year Balance At Beg. Of Year

VAT -976,764.71 -1,034 ,934.75

Urban maintenance and

construction tax

24,158.00

Property tax 45,676.68 45,676.68

Corporate income tax 1,397,355.47 -32,950.29

Personal Income Tax 33,645.31 96,364.80

Education surcharge 10,353.47

Other taxes 58,467.79 97,886.94

Total 558,380.54 -793,445.15

16) Other payables

(1) Payables presented by aging as follows


Balance Proportion (%) Balance Proportion (%)

Within 1 year 3,937,837.20 90.49 26,012,610.46 96.90

1-2 years 10,201.42 0.23 379,936.04 1.42

2-3 years 34,388.00 0.13

Over 3 years 403,870.00 9.28 416,264.00 1.55

Total 4,351,908.62 100.00 26,843,198.50 100.00

17) Paid-up capital



Investors

Opening balance Increase

this year

Decrease

this year

Ending balance

Investment

amount

Proportion

(%)

Investment

amount Proportion (%)

Hubei Biocause

Pharmaceutical Co., Ltd. 33,000,000.00 50.00 33,000,000.00

50.00

Granules India Limited 33,000,000.00 50.00 33,000,000.00 50,00

Total 66,000,000.00 100.00 66,000,000.00 100,00

18) Capital reserve

Item Balance At Beg. Of Year Increase this year Decrease this year Balance At End of Year

Capital premium 45,604.99 45,604.99

Current 45,604.99 45,604.99

19) Surplus reserve

Item Balance At Beg. Of Year Increase this year Decrease this year Balance At End of Year

Statutory surplus

reserve 1,881,702.80 661,351.66 2,543,054.46

Current 1,881,702.80 661,351.66 2,543,054.46

20) Retained profit after appropriation

Item Balance At End of Year

Amounts Extraction and allocation ratio

Before adjustment of undistributed profit last year 13,555,712.01

Total undistributed profit adjustment (increase +, decrease -)

Retained earnings at the beginning of the year after adjustment 13,555,712.01

Plus: Net profit attributable to owners of parent company 6,613,516.60

Less: Appropriation of statutory surplus reserves 661,351.66 10%

Appropriation of discretionary surplus reserve

General reserve

Appropriation of general shares dividend

Transfer from ordinary shares dividend to paid in capital

Retained earnings at end of year 19,507,876.95

21) Operating income and operating costs

Item Amount occurred this year Amount occurred last year

Income Cost Income Cost

Main business Subtotal 225,726,280.57 200,313,427.30 225,166,210.97 206,893,772.41

Other activities Subtotal 1,216,089.29 1,028,164.14


January 1st, 2015 --- December 31st, 2015 Total 226,942,369.86 201,341,591.44 225,166,210.97 206,893,772.41

22) Operating tax and surtax

Item Tax rate Amount occurred this year Amount occurred last year

Urban construction tax payable 7% 729,501.79 441,298.64

Education surcharge 3% 312,643.58 189,127.97

Local education surcharge 2% 186,196.52 126,085.32

Total 1,228,341.89 756,511.93

23) Financial expenses


Interest expense 1,289,501.74 2,030,467.71

Less: Interest income 1,204,117.16 30,450.44

Handling charges 257,167.08 362,004.12

Total 342,551.66 2,362,021.39

24) Asset impairment


Bed debt 619,099.13 -552,903.23

25) Non-business income


Government subsidy 763,500.00 450,000.00

Other 34,882.00 3,209.42

Total 798,382.00 453,209.42

26) Government subsidy detail

Item Amount occurred this

year

Amount occurred last

year Note

Subsidy to promote the coordinated

development of regional foreign trade 260,000.00 230,000.00 Pertinent to income

Subsidy for SME international

marketing 30,000.00 120,000.00 Pertinent to income

Hubei Famous Brand Award 50,000.00 Pertinent to income

Post Subsidy 143,500.00 50,000.00 Pertinent to income

Main pollutant emission reduction

“Award for Subsidy” 330,000.00 Pertinent to income

Total 763,500.00 450,000.00 Pertinent to income



27) Non-operating expenses


Total loss on disposal of non-current assets 187,637.89 332,031.92

Wherein: loss on disposal of fixed assets 187,637.89 332,031.92

Others 39,670.23 113,588.24

Total 227,308.12 445,620.16

28) Income tax expense


Income tax calculated per related

taxation laws and regulations 1,430,305.76

Deferred tax adjustment 876,103.10 231,380.35

Total 2,306,408.86 231,380.35

29) Cash Flow Notes

Item Amount This Year Amount Last Year

1. Adjusting net profit to cash flows from operating activities:

Net profit 6,613,516.60 631,230.12

Add: Asset impairment 619,099.13 -552,903.23

Depreciation, depletion of oil and gas assets and productive

biological assets

4,230,925.81 4,366,508.53

Amortization of intangible assets 1,313,000.04 1,419,666.88

Long expected amortization expense Amortization

Disposal of fixed assets, intangible assets and other long-term

assets (income is "-" for loss)

187,637.89 332,031.92

Loss on retirement of fixed assets (gains "-" for loss)

Loss from changes in fair value (gains "-" for loss)

Financial expenses ("-" for loss) 1,289,501.74 2,030,467.71

Investment losses (with "-" for loss)

Deferred tax assets decreased (with "-" for loss) 876,103.10 231,380.35

Deferred income tax liabilities (with "-" for loss)

Decrease in inventories (with "-" for loss) 18,500,619.17 -11,191,141.18

Decrease in operating receivables (with "-" for loss) 17,158,179.08 -21,785,773.73

Increase in operating payables (with "-" for loss) -46,035,323.88 33,874,507.49

Other

Net cash flow from operating activities 4,753,258.68 9,355,974.86

2. Do not involve cash payments of major investment and

financing activities:


January 1st, 2015 --- December 31st, 2015 Conversion of debt into capital

Convertible bonds due within one year

The leased assets

3. Net change in cash and cash equivalents:

Closing balance of cash 17,234,863.98 16,906,304.73

Less: Cash at the beginning of 16,906,304.73 26,291,512.17

Add: Cash equivalents at end of period

Less: Opening balance of cash equivalents

Cash and cash equivalents 328,559.25 -9,385,207.44

6. Contingencies

As of December 31, 2015, the Company had no significant matters required to be disclosed.

7. Commitments

As of December 31, 2015, the Company had no significant commitments need to be

disclosed.

8. Events after the Balance Sheet Date

As of the reporting date, the Company had no significant need to disclose the balance sheet

date.

9. Affiliated parties and transactions

1) Parent company and ultimate controlling party

Company name Relationships Registration

location

Nature of

Business

Registered

Capital

(million yuan)

Shareholding

of the parent

companies

(%)

The proportion of

voting rights of the

parent companies (%)

Hubei Biocause

Pharmaceutical Co., Ltd.

Parent

company

Jingmen

Hubei Medicine 18,000.88 50.00 50.00

Tianmao Industry Group

Co., Ltd.

Ultimate controlling

party

Jingmen Hubei

Chemical industry

135,358.99 50.00 50.00

2) Other Parties affiliated to the Company

Other affiliated parties Other Parties affiliated to the Company Organization Code

Hubei Biocause Saponin Co., Ltd. Controlled by the same party 78818889-6

Hubei Biocause Pharmaceuticals Trading

Co., Ltd.

Controlled by the same party 73913911-5

Hubei Biocause Pharmaceuticals

Development Co., Ltd.

Controlled by the same party 73753176-2

Jingmen Hecheng Trading Co, Ltd. Controlled by the same party 66769752-0

Jingmen Tianrui Investment Co., Ltd. Controlled by the same party 08092048-X

Hubei Biocause Pharmaceutical Controlled by the same party 08662939-4


January 1st, 2015 --- December 31st, 2015 Co.,Ltd.

Jingmen Tianli Investment Co., Ltd. Controlled by the same party 09586570-0

3) Transactions with affiliated Parties

Name of affiliated party Type of affiliate

transactions

Content of

affiliate

transactions

Amount occurred current year

Amounts

Proportion in

the same sales

as%

Pricing policy and

decision-making

procedures

Hubei Biocause

Pharmaceutical Co., Ltd. Sales Sales of goods 12,160,839.29 4.12 Market price

Sales Subtotal 12,160,839.29 4.12

Tianmao Industry Group Co.,

Ltd. Purchase

Procurement of

materials 27,614,758.01 17.00 Market price

Hubei Biocause

Pharmaceutical Co., Ltd. Purchase

Procurement of

materials 72,669.42 0.04 Market price

Purchasing

Subtotal 27,687,427.43 17.04

4) Accounts payable & receivable to or from affiliated parties

Name of related party Balance At End of Year Balance At Beg. Of Year

Amounts Proportion of

this item (%)

Bad

debts

Amounts Proportion of

this item (%)

Bad debts

Other receivables:

Hubei Biocause


1,198,587.17 49.17

Hubei Biocause

Pharmaceutical

Development Co., Ltd.

6,223.55 0.26 45,453,522.58 99.19

accounts payable:

Hubei Biocause

Chemical Co., Ltd.

29,589,686.99 81.62

Other payables

Hubei Biocause


2,639,482.75 9.83

10. Other significant matters

As of the report date, the Company has no significant matters that need to be disclosed.




January 29th, 2016





Notes to the financial statement from the page 1 to page 25 are signed by the following persons:


Signature: Signature: Signature:

Date: Date: Date:

Yi Yanhao (SEAL) Yi Yanhao (SEAL) Cheng Zhigang (SEAL)




Audit Report

DXSZ [2016] No. 2-00048

WUYIGE Certified Public Accountants LLP. （Special General Partnership）

Special SEAL for the WUYIGE

Certified Public Accountants

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